Minnesota lawmakers will have about $600 million less than expected for tax cuts and spending increases over the next two years. For the first time in nine years, the state's revenue forecast shows a drop in projected revenues.

STATE FINANCE OFFICIALS are calling the latest forecast a "modest adjustment" from the November outlook, which predicted a $3 billion surplus over the next two-and-a-half years. State economist Tom Stinson says the new numbers reflect an economic slowdown, but not a recession.

"We're not going in reverse, like we would be if we were in a recession, but growth has slowed," Stinson said.

The forecast divides the projected surplus into two pots of money - the amount available for a potential tax rebate this year, which is down $67 million, and the amount available for tax relief and spending increases for the next two-year budget cycle, which is down about $500 million. That still leaves an $850 million surplus this year, and about $1.5 billion extra in the next two years.

"This revision is not that drastic, it's not that big of a deal; it's just going to require a few smaller adjustments, it's not going to require any major change to my full tax proposal at all," said Ventura.

Ventura says he'll release the adjustments to his budget later this week. The governor has proposed an ambitious tax reform plan to lower property taxes by having the state pick up a greater share of education costs, cut income tax rates and reduce the sales tax rate, while expanding the sales tax to cover some services.

DFL leaders say Ventura should reconsider the income tax cuts, in light of the downsized forecast. Senate Majority Leader Roger Moe of Erskine says cutting the income tax isn't a priority for Democrats.

"The resources we have for tax relief is going to go into the property tax cut. I've said that before, and I don't see us changing that. I would suggest to the administration that this is probably an area that they ought to hold back on," says Moe.

Moe says lawmakers should show restraint when considering tax cuts and spending increases, because the economy is likely to slow down further before it bounces back again. Moe says he asked state economist Stinson about some sectors of the economy that haven't benefitted from recent growth.

"Where I come from, this rosy economy has yet to show up in town," Moe said. "He indicated that they expect a revision down going through '03 in the mining industry, wood products are flat, and I think, some very pessimistic predictions for agriculture."

"You halfway expect your average DFL state senator to be a leisure suit, with bell-bottoms, with psychedelic glasses, because the policies that they are projecting are those from the Carter administration."

- Rep. Ron Abrams

But Republicans chose to focus on the good news in the forecast, namely that the state still has about $2.4 billion surplus. House Taxes Committee Chairman Ron Abrams of Minnetonka mocked DFLers for their cautious approach.

"You halfway expect your average DFL state senator to be a leisure suit, with bell-bottoms, with psychedelic glasses, because the policies that they are projecting are those from the Carter administration. We prefer the policies of the Bush administration; we are going to have tax cuts that leave no one behind," Abrams said.

House Republicans say they want to reduce property taxes, income tax rates and the state's tax on doctors, hospitals and clinics. They also want to return the entire amount available for a rebate this year, as does the governor. Senate Democrats want to spend part of the money on transportation needs, and have already voted to use $30 million to help schools pay their heating bills.

Now that legislators have the forecast, they'll get to work crunching numbers. House Republicans plan to release their tax and spending plan in a couple of weeks, while Senate Democrats say they'll release their budget proposal in about a month.

Laura McCallum covers the Capitol for Minnesota Public Radio. Reach her via e-mail at lmccallum@mpr.org.